New American Air boss battles industry talking head and congressional critics

Alan Levin, Bloomberg

- Jun 20, 2013 4:00 am

Skift Take

Declining competition will come with a merger between US Air and American as well as with two weak, independent airlines. The U.S. government is in a better position to force concessions prior to a merger rather than bullying two airlines on their own.

— Jason Clampet

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The proposed merger between US Airways Group Inc. and AMR Corp.’s American Airlines would reduce competition on 11.9 percent of U.S. air routes, a government review found [report embedded below].

The number of cities that would lose a carrier after the merger is 47 percent higher than in the 2010 combination that created United Continental Holdings Inc., Gerald Dillingham, who heads transportation issues at the U.S. Government Accountability Office, told a Senate hearing today.

The new carrier will raise prices, decrease service and create labor unrest for its employees, Charles Leocha, director of the Washington-based Consumer Travel Alliance, said at the hearing.

“There are no benefits overall,” Leocha said. “It’s time to stop this merger madness.”

The Commerce, Science and Transportation’s aviation subcommittee hearing came a day after two Senators, Democrat Amy Klobuchar of Minnesota and Republican Mike Lee of Utah, wrote a letter urging U.S. regulators to consider the merger’s impacts on consumers.

US Airways Chief Executive Officer Doug Parker, who will lead the combined carrier if the merger is approved by the Justice Department, defended the marriage at the hearing. The Department of Transportation assists Justice analysts in their review.

Merger defended

Concerns by Leocha and others are “just plain wrong,” Parker told the committee.

The combination of American and US Airways will make it easier to compete against United and Delta Air Lines Inc., giving passengers more choices and enhancing competition, he said.

US Airways, based in Tempe, Arizona, now flies to 64 cities, most of those small- and medium-sized, where American has no service, he said. Many passengers in those cities will gain access to what is now American’s hub network, he said.

“US Airways historically has provided extensive service to smaller communities and the merger will allow us to continue to extend that focus, building on complementary service offered by American Eagle,” he said.

US Airways has estimated the merger will create $1.4 billion in benefits, according to GAO.

The two carriers have overlapping nonstop routes on 12 city pairs, according to October 2012 data analyzed by GAO. In seven of those, the combined carrier would be the only airline.

Losing competition

Routes on which the two carriers have the only nonstop flights include Charlotte, North Carolina to Miami; Washington’s Reagan National to Raleigh, North Carolina, and Miami to Philadelphia, according to Dillingham.

Compared to the 2010 merger between United Airlines and Continental, 530 more routes will lose at least one competitor if this merger goes forward, the GAO found.

In all, 1,665 city-pair markets carrying 53 million passengers a year will lose a competing airline in the merger, according to the GAO — 47 percent more than in the previous deal. At least one competitor would remain in most of those markets.

The proposed merger would add a new competitor with at least 5 percent market share on 210 routes, the review found.

GAO analyzed 13,963 airport pairs.

The combined airline may close some of its hubs, the GAO concluded.

Washington slots

“New York could serve as a better hub and international gateway than Philadelphia in the Northeast, while Miami could be a better hub than Charlotte in the Southeast,” the GAO report said.

Competitors including JetBlue Airways Corp. and Southwest Airlines Co. have said the new American will control too many flights at Reagan National, where capacity is limited by the U.S. government.

Parker has said the Washington region is served by two other airports with ample competition and he doesn’t expect antitrust issues to be raised.

The new carrier will have to reduce service to smaller communities if forced to give up flights at Reagan National, Parker said.

US Airways had to drop flights from Washington to Madison, Wisconsin and Grand Rapids, Michigan last year after it gave up slots in an agreement with the Transportation Department, Parker said.

Senators’ letter

Leocha’s group found competition would decline at some non- hub airports where US Airways and American now compete. Those cities include Austin, Texas; Pittsburgh, San Diego and Las Vegas.

Klobuchar, chairman of the Judiciary Committee’s antitrust panel, and Lee, the subcommittee’s ranking Republican, wrote to Attorney General Eric Holder and Transportation Secretary Ray LaHood yesterday to raise questions about the merger.

“Consumer advocates assert that this additional consolidation could lead to a reduction in consumer welfare in the form of increased prices and fees, and decreased choice, service, and quality,” they said in the letter.

Senator Jay Rockefeller, the West Virginia Democrat who is chairman of the commerce committee, said in an e-mailed statement he was “uncertain” the merger would benefit passengers.

“We must make sure that the advantages of a strong aviation sector benefit more than just shareholders,” Rockefeller said.

Editors: Bernard Kohn, Elizabeth Wasserman. To contact the reporter on this story: Alan Levin in Washington at alevin24@bloomberg.net. To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net.